April 30 (Bloomberg) -- American International Group Inc., the insurer selling assets to repay a U.S. loan, may shut its mortgage guarantor after failing to turn around the unprofitable unit, said two people familiar with the matter.

AIG may wind down any parts of the mortgage insurer that can’t be sold, said one of the people, who asked not to be identified because the plans are confidential. AIG’s United Guaranty Corp. has posted more than $2.8 billion in operating losses since April of 2007.

“We’re talking to a number of prospective buyers and we’re considering a number of options, but no decisions have been made” about United Guaranty, said Peter Tulupman, a spokesman for New York-based AIG.

AIG, which promised to sell businesses to repay a loan included in a government rescue package valued at $182.5 billion, has announced about $4.4 billion of asset sales since the September bailout. The company has disclosed plans to place its two biggest non-U.S. life insurers into trusts for eventual initial public offerings or sales as the credit crisis hobbled potential buyers’ ability to make bids.

AIG has hired consulting firm McKinsey & Co. to examine all operations being divested, said one of the people.

United Guaranty, based in Greensboro, North Carolina with about 950 employees worldwide, lost money for seven straight quarters amid the worst housing slump since the Great Depression. AIG said in October that it may be difficult to find a buyer for the unit, which reimburses mortgage lenders when borrowers can’t repay and foreclosure fails to cover costs.

The firm was ranked the fifth-largest U.S. mortgage insurer by 2008 sales, behind No. 1 ranked MGIC Investment Corp., Genworth Financial Inc.,Radian Group Inc. and PMI Group Inc., according to Inside Mortgage Finance, a trade journal.

Before the Slump

United Guaranty was founded in 1963 and sold to AIG in 1981. The business generated $2.8 billion in operating income and $600 million in dividends for AIG in the eight years prior to the housing slump, the company said.

If AIG winds down the business, it may enter “runoff,” continuing to pay claims and book profits or losses from previously sold policies. The company would stop selling new coverage and cease operations when the last of its existing policies expires.

No. 7 Triad Guaranty Inc. entered runoff last year after capital ran short. The insurer was ordered by its state regulator earlier this month to defer 40 percent of claims payments because of “uncertainty” over whether it will meet its obligations.

MGIC’s Loss

MGIC posted a $184.6 million first-quarter net loss yesterday and said it may be unable to sell new policies by the end of this year without fresh capital. AIG hasn’t yet announced first-quarter results.

AIG posted the worst loss in U.S. corporate history in the fourth quarter. The company also made bad bets originating mortgages and investing in securities backed by home loans.

AIG’s rescue includes as much as $70 billion in preferred stock and warrants, $52.5 billion to buy assets owned or backed by the insurer, and a $60 billion credit line. AIG had tapped about $44 billion of its credit line as of April 22.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: April 30, 2009 15:30 EDT